Mutual Fund 'Soft-Dollar' Arrangements: Analysis and Findings

Abstract

In brief, mutual fund bundling services under soft-dollar arrangements may benefit shareholders. However, it is also possible shareholder capital is wasted through these arrangements. There are two major questions concerning bundling actively managed equity fund research and services in soft-dollar arrangements. First, do these arrangements provide higher risk-adjusted fund performance and/or lower advisory fees? Or, second, are shareholder assets wasted through use of soft-dollar arrangements? The research findings say “yes” only to the second question.

Keywords: mutual funds, soft dollars, soft-dollar arrangements, agency conflicts, disclosure, transparency, opague commission bundling, excess bundling of research and services, excess trading, fund boards, advisory fees

JEL Classification: G2, G23, G28